Estimating product quality: a copula approach

The main challenge in analysing product quality is that it is unobserved. A common feature in related studies is to employ price-based ad hoc proxies to measure product quality. However, high product prices do not necessarily suggest high product quality. Piveteau and Smagghue (2019) propose a methodology that estimates product quality from the demand side and exploits information coming from the importing activity of exporters to deal with the price endogeneity challenge yet requires extensive disaggregated data. This paper builds upon their work and offers a simple instrument-free demand estimation method to infer product quality using the properties of the Gaussian copula. We use data from Greek exporters spanning from 2002 to 2014 and obtain a less data intensive and robust quality measure at the firm-product level, especially in markets with higher differentiation where product quality is more significant.